Conversion of Commercial-to-Residential Projects Could Alleviate Some of Hawaii’s Housing Crunch

The message was clear in the last election that Hawaii voters want action on affordable housing. In addition to placing more resources and energy into conventional means of building affordable housing to meet the increasing demand of the housing-rental crunch, there should be new creative government-private partnerships. We need out-of-the-box ideas.

Commercial-to-housing conversion projects
One possible area is supporting projects that convert commercial spaces (offices, retail, motels, etc.) to residential properties. This is a trend that is being explored on the mainland and cities around the world.

As remote virtual work becomes a permanent alternative for many forms of businesses, coupled with current and projected high-office vacancy rates in downtown Honolulu and elsewhere (and possibly in the not-too-distant future with retail as well), perhaps it’s the right time for commercial-to-housing conversions projects to be seriously considered.

Such projects would not only provide much needed additional real estate inventory in Hawaii, but it will also bolster the local construction industry and stimulate the state’s overall economy.

The best part is such projects will not require new land (for example converting valuable agriculture land) to designate for more housing. We would be making better use of space that already exists.

Streamline bureaucracy for such projects
One major drawback that we’ve learned on the mainland that deters some developers from commercial-to-residential projects is delays in the permits process that could take years to green light.

This is where our state and counties governments can step in to streamline and expedite backlogs for such special projects.

Downtown Honolulu
In the immediate outskirts of downtown Honolulu along Nuuanu, parts of Bishop Street and into parts of Chinatown, there already exists a sizeable residential population. That community, along with the business community in downtown, have been welcoming of the idea for more residential projects in the area.

Conversion of office-to-residential in downtown Honolulu would help to build a sense of community, a neighborhood, and not just a place where everything shuts down after business hours.

More conversion of office-to-residential projects could complement the already saturated Kakaako developments nearby. Such downtown conversions could also be more affordable than the Kakaako developments that have many locals priced out of that market.

Ideally, the downtown district should be zoned for mixed use of commercial, retail and various ranges of residential space from market-value to affordable. It’s important to have that price-range mix to draw in a diverse community to downtown like the Makiki neighborhood.

There already is a redeveloped commercial-to-residential building on Bishop Street that was done by a California-based developer. Recently, a local developer acquired the Davies Pacific Center office building also on Bishop Street makai of that first redevelopment project. The new owners plan to convert the building for mixed-use to include office, retail and market-rate residential units.

Empty buildings trend
Between 2019 and 2023, Colliers Hawaii projects that Oahu’s office inventory could potentially be reduced by about 1-million-square-feet or a whopping 7.5% of the total office market.

Hawaii tends to echo behind mainland trends. If you look to the mainland, office vacancy is a lot higher. According to Avison Young, a commercial real estate firm, in 2021, the commercial vacancy rate across San Francisco reached 15.4%, up from the previous year of 12% and more than double from what it was just two years ago.

Other cities office vacancy rates: Phoenix 16.2%, Miami, 16.9%, Los Angeles 17.8%, New York City 19.2%, Houston 22.9%

It’s still too early to tell how much of those unused workspaces will rebound from the pandemic. But experts project it’s unlikely for office buildings to recapture the lease occupancy they had prior to the pandemic given the changed work culture. For certain businesses, they’ve found it’s more economical and practical for distance virtual work and made it a permanent practice.

Such businesses are also finding to rent out meeting rooms (another trend to accommodate companies primarily distance virtual-based) for a day or short term for in-person company meetings is cheaper than paying for a monthly office rental.

The technology is already available for virtual work culture, and technology will only improve to make virtual work easier.

A political win
Hawaii lawmakers, including our new Governor Josh Green, are facing pressure to deliver on their campaign promises to increase inventory of affordable housing. A myriad of options should be pursued, and conversion of commercial-to-residential projects should be among them.

With very limited land available and the vast square footage that commercial buildings can provide for residential use, it could very well be one of the solutions to alleviate the affordable housing crisis.

Zoning and permitting through Hawaii’s counties, incentives for developers, and countless details would need to be worked out.

Conversion of commercial-to-residential is visionary. Implementation to ensure it’s done right will take a lot of work, but could be worth it, and ultimately be a political win and community win.